OREANDA-NEWS. August 15, 2008. The last years’ growth in fuel prices reflects the general tensions in the field of energy saving. A few years ago most of experts said that the growth in the oil prices would not last for long and was due mostly to political instability in some oil producing countries and speculations on the market.

Today, they say that the key reason for this growth is the swelling demand for more energy and restricted capacities to produce it. In the last six years the cost of electricity production at gas-fueled plants has tripled, at coal-fueled plants – doubled. At nuclear power plants the cost of electricity production does not very much depend on the price of the raw material.

The experts are certainly aware of the new economic situation on the energy market but they have not yet analyzed it in-depth. Many of them still believe that additional financing will help to discover new deposits and to stabilize or even reduce the prices. But the real situation is different.

The inertness of the energy sector is a big problem. The situation on the energy market is changing so quickly that we may prove to have no time or resources to implement alternative scenarios. As a result, more and more people will begin to suggest “magic” panaceas like wind energy. But it will take no less time and effort to check up their efficiency.

This situation is typical of a system crisis and may end in slumping consumption, social tensions and geo-political unpredictability.

Life is changing proportions

Nuclear power industry also has problems that curb its competitiveness. At nuclear power plants capital expenditures make up 80% of the cost of electricity, while current expenses – just 20%. This is drastically different from the situation at thermal power plants. This is a traditional proportion for NPPs – it has been present for over 30 years already – and we have got so used to it that we regard it as a natural law. However, the serious changes in the fuel prices are beginning to change this proportion too.

The growing fuel prices have not bypassed the uranium market. In the last years the uranium price on the spot market has grown by 15 times. In fact, the uranium price is growing more quickly than the oil and gold prices are. Naturally, we want to know if this growth has a limit and how it can influence the rate of development of the nuclear sector.

But despite this growth the current price of gas — USD 300 per 1,000 c m – is so high that gas-fueled plants cannot rival with NPPs in the cost of production. In Russia the gas price is much lower — USD 70 per 1,000 c m – so here TPPs still have a chance. 

One more problem influencing the competitiveness of nuclear energy is the cost of imported materials. The quickly growing Asian economies consume plenty of raw materials and are forcing up the prices of steel, reinforced concrete and other stuffs. The last time these prices were stable was 2003. Today, it is very hard to predict their further behavior.

Even though other types of power plants are also facing such problems, for NPPs this blow may turn out more painful as in the nuclear industry the initial stage is more crucial and expensive.

Today, our nuclear industry is reviving after a long period of stagnation and needs some “buildup” time – this is also a problem but it is not as serious as the abovementioned ones.

Even though the public attitude towards nuclear energy is improving, problems like toughening of the nuclear nonproliferation regime and increasingly fierce combat with nuclear terrorism may also have an impact on the competitiveness of nuclear energy in terms of development and financing.

The power equipment prices are “flourishing” in Russia despite its “bottlenecks” in machine building industry. This is not only Russia’s problem. For example, Mitsubishi Heavy Industries, a Japanese company producing high pressure tanks for AREVA and Mitsubishi-Westinghouse, has heaps of contracts for years ahead.

Transparency of price policy

Atomenergoprom is planning to set up an anti-cartel committee for preventing price collusions among big suppliers of equipment for nuclear power plants. And this is not a coincidence. This is an essential measure. But it is hard to imagine how it can be carried out within the existing development models.

It is clear that the uranium and gas prices will continue to climb. It is also clear that the key factor forcing the uranium price to climb is not the growing cost of uranium prospecting and mining or the growing demand for raw materials but the “intra-group” competition. Given equal electricity prices the lower cost of electricity production at nuclear power plants yields additional profit worth 3–5 US cents per KWh and, naturally, the key players of the nuclear market want to share this profit “on an equity basis.” So, it is obvious that the prices for all components of the cost of NPP-produced electricity will grow.

The competitiveness of nuclear power plants could be raised if they were included in the “emission trade” schemes – the programs to reduce greenhouse gas emissions. One of the key advantages of nuclear power plants is that they produce almost no greenhouse gases. Investors neglect this fact for the moment but this situation may change if such emissions are restricted or taxed.

The present price situation on the electricity market allows effectively estimating innovative capacities in the field of reactor construction.

Until recently, the key concern of reactor designers has been how to reduce their costs so as to squeeze into the competitive market of organic energy with its typical price of 3 US cents per KWh. For this purpose, they have been enhancing the capacity of reactors in order to reduce the share of capital expenditures in their cost value. As a result, they have made lots of big, high-power and hard-to-operate reactors requiring additional expenses on safety systems.

The present situation is giving reactor designers a kind of free hand. Now that they have attained a substantial advantage in terms of cost value they can look at reactors from a different point of view. Low-power reactors may prove no less — if not more — effective. It is well known that WWER-440 reactor is still one of the best in the world even though it has lower capacity than WWER-1000.

Now the economy is able to consume more expensive electricity and there is no urgent need to fight for further reduction of the costs. It would be more expedient to try to design a better adaptable reactor – even if it proves to be more expensive than its existing analogues. Nuclear power engineering is a very comfortable method of energy production. The present situation on the energy market seems to favor nuclear power engineering.

The uranium prices will continue to grow. On the one hand, this will reduce the economic appeal of nuclear power plants (though very insignificantly) but, on the other hand, this will stimulate the efforts to create a closed fuel cycle and to develop fast-breeder reactor technologies so as to involve uranium-238 in the fuel cycle.

There is one more interesting circumstance. We have got so preoccupied with economic and financial efficiency that it has become our key strategic line. Now that the situation on the market is very vague our economic estimates seem a bit naпve. I don’t mean that we must stop long-term analyses. Simply, we should give preference to mainstream tendencies over senseless bookkeeping.